How do current assets differ from non-current assets?

The distinction between current assets and non-current assets is primarily based on their liquidity and the time frame within which they are expected to convert into cash or be used up. Current assets are assets that a company expects to liquidate or convert into cash within one year or within the operating cycle, whichever is longer. This includes items such as cash, accounts receivable, and inventory that can quickly be turned into cash to meet short-term obligations.

On the other hand, non-current assets are those that a company intends to hold for longer than one year. These assets are not expected to be quickly converted into cash but are instead used over time to generate revenue. Non-current assets include property, plant, equipment, long-term investments, and intangible assets like patents and trademarks.

This fundamental framework aligns with accounting principles regarding asset classification, highlighting the importance of distinguishing between short-term and long-term liquidity in financial reporting.